The Asia Pacific (ex-Japan) exchange-traded fund (ETF) industry continues to grow with record-level net inflows of USD11 billion during the first half of 2016 and total assets under management of USD123 billion, according to a report by BMO Global Asset Management (BMO GAM).
The region’s AUM compares to USD2.3 trillion in AUM for the US market and USD529 billion in AUM for the European market.
“In light of ongoing volatility in Asian markets and moderating growth in China since the beginning of this year, investors in the region are looking for stable, high quality products that have strong long-term prospects,” says Clarence Chan, head of ETF and beta investments, BMO Global Asset Management (Asia) Limited. “In particular, fixed income ETFs have achieved record level net inflows of USD2.6 billion, demonstrating that investors recognise the diversification and liquidity benefits of this asset class. Also, in the low yield environment, low fees of these products help investors maintain their net income.”
The BMO ETF Outlook Report examines how global market uncertainty will drive growth opportunities for the ETF industry in the second half of 2016.
According to the report, investors continue to recognise the benefits of using ETFs to address volatility and are moving to smart beta ETFs focused on income, quality and low volatility.
Investors are migrating away from direct-security holdings to sector-based ETFs that offer diversified exposures.
The growth of fixed income ETFs is expected to outpace equity ETFs as investors look for yield solutions. The ETF industry has added more precise exposures, slicing the credit spectrum and segmenting by maturity.
In an environment of global economic uncertainty, currency exposure continues to be top of mind for investors. The ETF industry has evolved and offers both hedged and unhedged exposures, giving investors effective tools to manage currency risk in their portfolios.
In the current low-interest-rate environment, investors are looking beyond traditional exposures and are gravitating towards ETFs that can generate more income for their portfolios.
The BMO ETF Outlook Report also features expectations for the future of the ETF industry, noting that the number of providers has continued to expand globally. In response, providers are focusing on creating products that stand out in the marketplace, allowing investors to benefit from having more choice than ever before.
Chan says: “In Asia, we anticipate the ETF market will continue to mature and grow as both retail and institutional investors become more knowledgeable about ETFs and the range of offerings expands.”